Book contents
- The Cambridge Handbook of EU Sustainable Finance
- The Cambridge Handbook of EU Sustainable Finance
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Preface
- Acknowledgements
- Part I Introduction
- Part II Ethics and Sustainability in Corporate Law, Corporate Governance and Conduct
- Part III Integrating Sustainability in Financial Markets Regulation
- Part IV Ensuring Financial Stability and Sustainability
- Part V Financial Innovation and Sustainability
- 25 Can Financial Regulation Truly Support the Reduction of CO2 Emissions?
- 26 Climate Risk and Financial Markets
- 27 The Skin-in-the-Game Bond
- 28 Financial Innovation in the Process of Financial Inclusion
- 29 Sustainable Finance and Fintech
- Index
- References
27 - The Skin-in-the-Game Bond
A Novel Sustainable Capital Instrument
from Part V - Financial Innovation and Sustainability
Published online by Cambridge University Press: 30 January 2025
Book contents
- The Cambridge Handbook of EU Sustainable Finance
- The Cambridge Handbook of EU Sustainable Finance
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Preface
- Acknowledgements
- Part I Introduction
- Part II Ethics and Sustainability in Corporate Law, Corporate Governance and Conduct
- Part III Integrating Sustainability in Financial Markets Regulation
- Part IV Ensuring Financial Stability and Sustainability
- Part V Financial Innovation and Sustainability
- 25 Can Financial Regulation Truly Support the Reduction of CO2 Emissions?
- 26 Climate Risk and Financial Markets
- 27 The Skin-in-the-Game Bond
- 28 Financial Innovation in the Process of Financial Inclusion
- 29 Sustainable Finance and Fintech
- Index
- References
Summary
We introduce a novel sustainable capital instrument: the skin-in-the-game bond. With features inspired by contingent convertibles (CoCos), this bond is an alternative for the green, social, sustainability and sustainability-linked bonds available on the market. A skin-in-the-game bond is linked to the performance of a benchmark that relates to the broad concept of sustainability in at least one of its pillars, being the environment (E), society (S) or corporate governance (G). When the benchmark hits a preset trigger level, (part of) the bond’s face value is withheld and directed into a government-controlled fund by the issuer. The skin-in-the-game bond offers a higher yield to investors than a standard corporate bond, in order to compensate for the risk of losing out on (part of) the investment. Both issuer and investor have skin-in-the-game; the embedded financial penalty incentivizes the preservation of a favourable benchmark value. In this work, we elaborate on the general concept of a skin-in-the-game bond, as well as on a tailored valuation model, illustrated by two examples: the ESG and nuclear skin-in-the-game bonds.
Keywords
- Type
- Chapter
- Information
- The Cambridge Handbook of EU Sustainable FinanceRegulation, Supervision and Governance, pp. 686 - 711Publisher: Cambridge University PressPrint publication year: 2025
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